John R. Graham is a financial, economic, and policy analyst in the health sector. His appointments include:
Senior Fellow of The National Center for Policy Analysis;
Senior Fellow of The Independent Institute;
Senior Fellow of the Pacific Research Institute;
Senior Fellow of The Fraser Institute;
Adjunct Scholar of The Mackinac Center for Public Policy;
Columnist at Forbes.com's The Apothecary blog;
Member of the Board of Visitors of The Benjamin Rush Society of medical students and physicians.

Good News for Health Care: Medical Connectivity To Grow Over 800 Percent in 7 Years

A Patient in an Intensive Care Unit (ICU) is surrounded by 6 to 12 medical devices. (Photo credit: Wikipedia)

Transparency Market Research recently published a report anticipating a 38 percent compound annual growth rate in the market for medical-device connectivity through 2019, from $3.4 billion worldwide in 2012. If this comes to pass, it is good news, because it will cause health costs to drop and quality to increase.

“Connectivity” refers to medical devices communicating with each other, and the patient’s Electronic Health Record (EHR). The Transparency Market Research report defines connectivity as to “control, configure and monitor patient’s administration data such as dose, rate, timing etc., physiological data and other key information”.

Since 2009, the big story in health IT has been the installation of EHRs by hospitals and other providers (as previously reported by Matthew Herper). However, the benefits of this investment are unclear (and, perhaps, non-existent). The recent, rapid adoption of EHRs has been driven by government funding, not providers’ self-identified business needs. From 2011 through November 2013, the federal government handed over more than $17 billion to providers who demonstrated so-called “meaningful use” of EHRs.

However, these systems may not increase quality of care, because errors introduced to EHRs can be difficult to correct, according to medical informatics expert and physician Scot Silverstein. Nor do they save money. Last year, scholars from the RAND think tank published an article regretting a prediction from 2005, that rapid adoption of health IT would save $81 billion annually.

The savings have not been achieved, and the scholars anticipate that significant changes in reimbursement (that is, paying for value not volume) will have to take place before providers take full advantage of health IT. Even worse, there is some evidence that EHRs make it easier for physicians to order superfluous tests, thereby raising health costs.

Further, the government-driven implementation is hitting roadblocks. Stages 2 and 3 of “meaningful use” include more challenging targets than stage 1 (for which providers are currently being paid). Especially, stage 2 requires the ability for an EHR to participate in a health information exchange, which facilitates the flow of patient data seamlessly between providers. Because this conflicts with each provider’s business goal of making patient data “sticky” and increasing patients’ switching costs, they have resisted going this far. As a result the federal government has delayed the deadline for meeting the requirements of stages 2 and 3.

Analyst Michael Cherny of International Strategy & Investment Group notes that various stakeholders (both elected officials as well as industry organizations) have lobbied CMS for a delay in the timeline, and anticipates that the delay will likely give slightly incremental protection to the smaller and undercapitalized niche players, but believes that the EHR market will continue to see a migrate towards larger vendors.

“Connectivity” is a different opportunity. Rather than taxpayer-fueled installation of EHRs containing patient data mostly entered by humans, and which cannot talk to their competitors, connectivity follows a more natural (but not friction-free) course. A recent report from the West Health Institute anticipates $36 billion savings annually from successful adoption of medical-device connectivity.

Will this prediction be regretted, like RAND’s 2005 forecast? The incentives for medical-device connectivity are much more likely to succeed than those for EHRs exchanging information across providers. The West Health report notes that a patient in an Intensive Care Unit (ICU) is surrounded by six to twelve medical devices, which mostly do not communicate with each other or the EHR. The report also illustrates the case for connectivity with a number of vignettes.

For example, a brain-injured patient in the ICU breaths with the help of a ventilator, operating according to physician-prescribed parameters. A respiratory therapist draws blood to send to the lab to test the levels of oxygen and carbon dioxide. The lab calls the ICU nurse with the results, who reports them to the physician, which leads to adjusting the ventilator. This happens four to six times a day. Even a layman can see how inefficient this is, and how it could be improved by connecting the procedures.

On their own, the medical-device makers have little incentive to overcome this problem. However, both hospitals and insurers increasingly have the right incentives. Although we cannot be certain that new payment mechanisms that pay for value, rather than volume, will succeed, innovative models are emerging quickly. Together, hospitals and insurers can influence device makers to adopt common standards to facilitate connectivity. Health information exchange between different hospitals’ EHRs suffers from the lack of such an incentive.

The rapidly emerging market for medical-device connectivity is good news for patients, payers, and taxpayers.

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Dear John, The real benefits of medical device and EHR connectivity – or interoperability – will be the improvements in patient safety enabled by timely access to complete and accurate data, and the ability to “close the loop” on clinical care prior to an adverse event. Today, we lack the ability to integrate all devices in the patient environment to coordinate care, provide smart alarms, or “play back” data from a near miss (in contrast to aviation safety systems and the aircraft black box recorder). Some of the clinical benefits of interoperability are depicted on our research website . We have recently released free research software to create an open, standards-based “Integrated Clinical Environment” – OpenICE. (funded in part by grants from NIH, NSF, DoD, and NIST. Julian Goldman e-card www.jgoldman.info

Thank you very much for your insightful comment. (BTW, being “called out” is a good thing. It means the comment is profiled, not criticized.)

I appreciate the comparison to aviation electronics.

What I found surprising in the West Health report is that safety improvements were anticipated, but they did not comprise the majority of the forecast savings. Most was straightforward efficiency of the “time and motion” variety. (What economists call X-efficiency.)

A number of our internal team and research collaborators contributed substantively to the West Health report. We had hoped that it would include safety benefits – in which case the projected financial impact would have been markedly greater – perhaps 100x. I think they simplified the scope of the report in order to reduce the complexity and get it done. A prospective study is needed but cannot be performed until appropriately advanced ICEs are available to compare to the status quo not-connected “legacy environments”. (That project is underway at Mass Gen Hosp.) Retrospective studies in this field are notoriously difficult and incomplete. Our team has been working on a retrospective outcomes analysis using the published literature … and it is a slog! Julian

I think they wanted a report that could be useful to a broad-based audience.

A prospective study would be very useful. However, would there not be risks extrapolating from it? Are hospital procedures standardized enough to extrapolate from a prospective study at one site, or is there enough parochialism to limit a general conclusion?

John, The idea is to standardize the technology platform including the medical device interfaces and EHR interfaces and data formats – not the clinical procedures. It is analogous to all the interoperability magic that powers the web and this blog. The technology is independent of the blog’s content, which allows us to apply our intellectual energy to this conversation, not to writing computer interface programs for each new computer that we want to connect to the internet. Another analogy is the power and versatility of the smartphone as an app platform. By standardizing the app interface for each platforms (platform = iOS, Android) app developers are empowered to develop innovative apps and disseminate broadly. By using standardized internet and device interfaces for smartphone peripherals, all smartphones can “use the same” wifi, internet, headphones, GPS, online traffic navigation services, etc. Applying this to healthcare: smarter, interoperable “integrated clinical environments” will allow clinicians, researchers, and manufacturers to create track and measure compliance to clinical processes for quality improvement, develop “smart” adaptive checklist apps that auto-detect missed steps, and develop apps for identifying impending adverse events while there is sufficient time to intervene, develop an app to stop an intravenous medication infusion before a patient stops breathing or develops dangerously low blood pressure. These standards-based environments of the future will also facilitate global sharing and implementation of these best practices – Julian

John and Julian- Thanks you for referencing our analysis on medical device connectivity, or ‘interoperability’ as its often referred. As a research institute focused on developing technology to lower the cost of healthcare, the goal of the analysis was to provide a solid estimate of financial savings improved interoperability could have, and help bring attention to this important cause. We’ve been a driving force in advancing interoperability to lower costs and recently launched the independent, non-profit Center for Medical Interoperability (http://j.mp/19djKmx). We’re also co-hosting a major, free conference in Washington D.C. on Feb. 6, 2014 with the ONC, which will be keynoted by Malcolm Gladwell. We hope to see you both there; more info here: http://www.hcidc.org Nick Valeriani, CEO, West Health Institute